Credit makes the world go around. Today it seems everything is based on credit, having it, sharing it and giving it. Recently on the Carol Anne Meehan show, we discussed the good and the bad when it comes to plastic magic.
You know, credit cards can be a blessing and a curse. They can get you out of a tight situation, help you purchase on-line and bolster your credit rating. But here’s the thing. You must pay them off, and right away. Otherwise you might find yourself paying more interest than the original purchase.
Who wants to give their money away to interest payments when you don’t have to?
Two famous examples of not relying on credit:
Mark Cuban, billionaire entrepreneur and owner of the Dallas Mavericks is someone who you think might have a wallet bulging with plastic, doesn’t use credit cards. He learned his lesson early in life with some bad debt. Today he’s ditched the plastic. He told Business Insider, “credit cards are the worst investment that you can make. The money I save on interest by not having debt is better than any return I could possibly get by investing that money in the stock market.”
He’s not the only celebrity with the same opinion. Jay Leno, comedian and self-made millionaire relies on cash. In a recent CNBC interview, he shared the following wisdom: “I barely use credit cards, I don’t carry any debt. I don’t write cheques at the end of the month for anything. That includes a mortgage, I didn’t buy my house until I had cash.”
Makes perfect sense, doesn’t it?
Here are a few rules that I tell my clients when it comes to credit card purchases:
- You don’t need more than one card. Stores will offer you bonuses for using their credit card, they’ll entice you with deals like 15% off when you use their card. Think about it. That 15% is probably a lot less than the monthly interest on the card. What are you really saving?
- Shop around, apply for the card with the lowest interest rate, there are many options, do some due diligence. It will pay you back in the long run.
- How much of a credit limit do you really need? Get a card with a low limit. This inhibits your chances of running up a big bill on impulse shopping. Know your limits and stick to it.
- You must pay more than the minimum balance. Sure, you may have a month now and then when it might seem like a great idea to only pay the minimum, after all that’s what their asking of you. But wait, that minimum balance may not even pay for the interest you are accruing. Still seem like a good idea?
- If you find yourself in credit card trouble, for example, more bills than money coming in, call the bank or the credit card company. Often when you explain your situation, and tell them you have a plan to get back on the green side of credit, they may be able to offer you a lower interest rate. Get it, and make sure you have a plan to pay off your credit card debt in a year.
Make a plan, establish guidelines
When using a credit card, it’s all about priorities. Do you really need that shiny new thing? Will it be worth getting in debt over? If you think about it seriously, I’ll bet you’ll make a different decision when you add the numbers up.
I’m Canada’s Money Coach, I’ll help you stay out of debt. If you find yourself thinking about a new loan or a credit card purchase make sure you weigh all your options. Get in touch with me today for helpful, useful and valuable advice about your money, and your future.